Featured Image - HR Guide To The SMCR (Senior Managers & Certification Regime) & Pre-employment Screening

HR Guide To The SMCR (Senior Managers & Certification Regime) & Pre-employment Screening

Date Published: October 09, 2019 | Last Updated: February 16, 2024 | By Georgina Wilson

From 09 December 2019, the Senior Managers and Certification Regime (SMCR) will apply to ALL firms who are authorised under the Financial Services and Markets Act (FSMA). It’s been a long time coming!

In July 2019, the UK Financial Conduct Authority (FCA) published its final rules on extending the SMCR to all firms regulated by the FCA. With SMCR now firmly on the horizon, employers, senior managers and board members within regulated firms will need to understand how it will affect them.

The SMCR currently applies to all UK-incorporated banks, building societies, credit unions and Prudential Regulation Authority-regulated investment banks and insurers.

From 09 December 2019, it will be expanded to cover firms that are currently regulated by the FCA. This will affect an estimated 50,000 asset management, broker and consumer credit type companies.

The SMCR is designed to place greater responsibility for actions on key individuals in the financial services sector and to make it easier to hold them to account when something goes wrong.

The SMCR will have an impact at various stages of the employment life cycle. As such, companies affected should begin preparations now to ensure they are ready for the new regime at the end of 2019.

SMCR and Employee Screening

There are numerous obligations and requirements under the SMCR, one of which is to ensure employees are fit and proper to conduct their role within the business.

At Accurate, we are working with clients to advise how firms can use a robust employment screening policy to assess whether an individual can be considered ‘fit and proper to perform a role’ in the context of the SMCR.

The main component of the SMCR in relation to employee screening is the expectation that organisations will take appropriate steps to satisfy themselves that individuals and employees are ‘Fit and Proper’ to perform critical roles within the business. Conducting robust background screening checks is a critical aspect of the ‘Fit and Proper’ assessment process as it enables clients to be confident:

a) the information they provide in applications for Senior Management Functions is accurate and truthful;

b) the screening of Certified Persons adequately meets their obligations to self-regulate.

Criminal Record Checks & SMCR Compliance

It is a mandatory requirement of the SMCR that individuals who are going to occupy a Senior Management Function undergo a ‘standard’ criminal record check (which details both spent and unspent convictions). It is also a mandatory requirement that Non-Executive Directors who are NOT occupying Senior Management Functions are subject to a criminal record check; however, they are only eligible for a basic (not a standard) check.

By contrast, criminal records are not mandated for those individuals who will be occupying a Certification function. Furthermore, Certified Persons are not eligible for standard criminal record checks and will only be eligible for a basic criminal record check (detailing unspent convictions only). Although basic criminal record checks can be undertaken at the firm’s discretion, they are common industry practice and considered invaluable for assessing an individual’s integrity.

Firms should also be considering international criminal record checks. Where an individual has spent a considerable amount of time working or living outside the UK, the FCA recommends firms should undertake appropriate checks in those overseas locations, to ensure they can make a good determination as to the individual’s fitness and propriety.

Changes To Reference Handling Under The SMCR

Referencing requirements under the SMCR are more extensive and subject to a greater degree of formality and standardisation than previously.  Managers and HR departments are having to use a prescribed template to compile detailed references about their employees’ past business performance and behaviour, including misconduct or regulatory issues.

A business wishing to appoint a Senior Manager, Certified Person or Non-Executive Director must seek references from any business where that individual has worked in the last six years. Furthermore, where that business is regulated by the FCA and or the PRA, such references should be regulated references. Regulatory references should mirror the format of the template outlined in SYSC 22 of the FCA Handbook. This template encourages consistency in the type of information transmitted between firms. Recipient firms who are regulated by the PRA/FCA are required:

a) to respond within 6 weeks in the prescribed template; and

b) to provide updates to their references where applicable (i.e. where a firm has provided a reference but later discovers misconduct or other significant information, they are obliged to update the firm to whom they previously provided a reference).

Other Checks To Consider For SMCR

Outside of the checks mandated by the FCA (criminal record checks and regulatory references) it is for the organisations themselves to determine what further checks they wish to conduct, to assess an employee’s fitness and propriety. When making such determinations, HR Managers should consider the Fit and Proper criteria of the FCA handbook which asks that individuals who will be appointed to perform specific roles are considered appropriate in relation to:

  • Honesty, integrity and reputation
  • Competence and capability
  • Financial soundness

Previously, under the Approved Persons Regime (APER), the FCA provided guidance as to what hirers might wish to consider as part of an individual’s fitness and propriety. These include:

  • Qualification certificates
  • Financial integrity checks
  • Criminal record checks
  • Directorship checks

Based on these documents and industry best practice, Accurate typically offer additional services as part of our standard SMCR SMF, CP and NED screening packages as follows:

  • Compliance database checks
  • Adverse media checks
  • Financial services register checks

Continuous screening should also be a vital consideration for firms needing to comply with the SMCR. The FCA expect that firms will continually revisit the fitness and propriety of their key appointments and, in the case of Certified Persons, the firm must provide them with certification on an annual basis to demonstrate their continued suitability to perform their role. What this ongoing assessment comprises of is left to the discretion of the HR department.

Firms with a heightened risk profile or perception may wish to repeat certain elements of the screening on an annual basis. Such repeat checks would typically be limited to screening elements which may be subject to change during an individual’s employment:

  • Financial integrity checks
  • Adverse media checks
  • Compliance database checks
  • Financial services register checks
  • Directorship checks

If you need general advice about SMCR Compliance and implementation, visit our partner company Robert Quinn Consulting and their SMCR Compliance portal. You can access Accurate SMCR background check services by clicking here. Alternatively if you need help on wider Employee Screening management, like international screening please do get in touch with us!